Penn National Gaming CEO Jay Snowden said Monday the regional casino operator had “materially reduced” the monthly costs necessary to maintain its 41 shuttered properties, allowing the company to “weather” the COVID-19 crisis.
In a letter to stakeholders, Snowden said the sale of the Tropicana Las Vegas to Gaming and Leisure Properties for rent credits, and an agreement with the company’s principal lenders to suspend certain payments through the end of 2020, reduced Penn’s monthly cash burn to approximately $83 million, which includes significant higher average expenses incurred during April.
Penn National also had $730 million in cash on its balance sheet at the end of March, before the latest transactions.
“After accounting for monthly cash burn, the company has enough liquidity to get through the end of 2020,” Macquarie Securities gaming analyst Chad Beynon told investors in a research note Monday. “That said, management is seeing a light at the end of the tunnel.”
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Penn will continue to operate the Tropicana Las Vegas once the resort reopens, under a two-year lease agreement with GLPI. The real estate investment trust, however, will look to sell the 1,500-room Rat Pack era resort on the south end of the Las Vegas Strip. Penn will receive 75% of the proceeds from the sale if it happens in the next 12 months.
Positive message
Snowden’s letter had an upbeat tone, telling investors the temporary shutdown of Penn’s casinos in 19 states to slow the coronavirus spread had “provided us with a unique opportunity to reimagine our casinos, and we have already identified ways to improve our operating model while enhancing the guest experience.”
As part of the transaction with GLPI, Penn has an opportunity to acquire the Hollywood Casino Perryville in Maryland this year, which would give the company representation in its 20th state.
Snowden also cited Penn’s $163 million sports betting deal with sports media platform Barstool Sports, which will be a key focus when operations eventually return. Penn and Barstool plan to launch a mobile wagering platform by the end of summer and rebrand the operator’s retail sportsbooks inside casinos.
“We expect our digital businesses to deliver meaningful revenue and profit contributions in 2021 and beyond,” Snowden said. “We also believe our continued evolution into the best-in-class omnichannel provider of retail and online gaming and sports betting entertainment will be a catalyst for our core land-based business.”
Transactions
Penn sold the Tropicana Las Vegas and its 34-acre parcel for $307.5 million in rent credits that will be applied to the existing leases for May, June, July, August, October, and a portion of November. GLPI owns the land and buildings for more than 30 of Penn’s regional casinos.
Penn’s lenders consented to amend credit agreements, which included suspending financial maintenance covenants for the second, third, and fourth quarters of 2020. GLPI also agreed to purchase the real estate for Penn’s under-construction mini-casino in Morgantown, Pennsylvania for rent credits of $30 million. Penn suspended work on the $111 million Hollywood Casino Morgantown in March.
“We have taken swift measures to significantly reduce our daily operating expenses through the GLPI transactions, company-wide furloughs (of 26,000 workers), decreases in compensation to our executive team and board of directors, and other cost mitigation measures,” Snowden wrote.
Chad Beynon, Macquarie Securities
Stock price up ‘222%’
Beynon said Penn was able to slice its operating expenses to $4 million per day – down from the $5.2 million per day he projected at the end of March. In the months that are “rent-free” through the deal with GLPI, Penn’s cash burn is less than $2 million per day.
Shares of Penn closed at $13.87 Monday on the Nasdaq, down 20 cents or 1.42%. Beynon said Penn’s shares fell 88% once the coronavirus-influenced casino closures cratered the gaming sector. He said Penn’s stock has “rebounded” 222% from its low point of $3.75.
The Barstool deal, he said, will combine Penn’s 20 million loyalty members with Barstool’s 66 million monthly users through more than a dozen social media networks.
“We believe the partnership is worth $10-plus per share to Penn shareholders,” Beynon said. “We also believe the pause in sports may help Barstool market share once sports reopen.”
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
